Owning a Bar in Phuket
How to Start
In our previous article we described what a tough life it is to own a bar in Phuket. Well what do you know, the main responses we had from that article were from people asking about how to get into the business.
I am not totally qualified to answer these questions as I never went ahead and got into the business myself. However, I did investigate the possibility and I do know plenty of bar owners so I can give some insight. But first let me say it again - making a living from a bar in Phuket is tough. Lots of people try and most fail in the first couple of years. Okay, I have given the warning again but if you are determined to go ahead then how do you start?
To start you have a few choices to make such as whether to buy or lease, whether to take a running business or start from scratch, what type of bar, etc.
Buy or Lease ?
The first thing to consider is whether you are going to buy or lease. For most people this is a simple choice. Buying is expensive and is beyond most people's budgets. It also has the extra complication of dealing with Thailand's laws prohibiting foreigners owning land. You get around this problem by setting up a Thai company to own the business with nominee Thai shareholders.
If your budget is big enough to allow you to buy then you have a huge advantage. For a start, you actually own an asset for your money so even if the business fails you can sell up and recoup your money. Also, you will not have to pay the monthly rent that the leaseholders are paying so your running expenses are instantly lower. And since you will need to set up a Thai company, you are already half-way to being legal.
Most people will lease. It is cheaper and easier. However, the terms of these leases tend to be weighed in favour of the landlord and it is the leaseholder businesses that really struggle in Phuket.
If you are leasing, make sure it is your name on the lease. Do not believe any stories that foreigners cannot have leases in their own name. Foreigners absolutely can have leases in their own name and since it is your investment, you most certainly should have it in your name.
Bar leases are usually for three years and sometimes have clauses for renewing after that period. The lease will specify a monthly rent and often an initial down payment they call key money.
What is Key Money ?
This rather bizarre concept is an initial payment the leaser makes just to get into the door of his business. What it buys the leaser is basically nothing. You still do not own anything the landlord has provided. Not the fixtures and fittings, not even the glasses. The key money figure may be 100,000 baht, it may be 3 million baht. It is a brilliant creation by the Thai landlords that guarantees they make money from you even if your business fails in the first month.
Let's take Soi Easy as an example. This is currently one of the least popular beer bar sois off Soi Bangla. The popularity of the different sois varies year-by-year but at the moment, Soi Easy probably attracts the least customers and has the most unoccupied bars. This did not stop the landlord from recently doubling the bar rents.
They are currently offering three-year leases with monthly rents from 30,000 baht a month and key money from 1.5 to 3 million baht. This is a staggering amount of money for these simple beer bars and it is so difficult for the bar owner to make the money back.
The odds are stacked against the leaseholder. Leases often specify that improvements made by the leaseholder such as fixtures and fittings will belong to the landlord at the end of the lease. And, if against the odds you do make a spectacular success from your bar, there is nothing to say that at the end of the lease the landlord can't just refuse to renew and instead take over the bar for himself.
Type of Business ?
The next choice is whether to buy a running business, a ready-to-go business or start from scratch,
There are obvious advantages with buying a running business. Your cash flow can start immediately and you will inherit staff and customers. In this situation, you will buy the remaining time on the lease from the existing leaseholder. What you are paying for is the key money and any fixtures, fittings, equipment and stock that belong to the leaseholder. You will then take over the monthly rent payments and the business is yours.
Theoretically, if the existing leaseholder paid 600,000 baht key money for a three-year lease that now has two years left, then his business is worth 400,000 baht for the key money plus money for whatever fixtures, fittings, equipment and stock he includes in the sale.
Of course, in reality you negotiate. If he has a booming business with lots of customers then it is worth more. More likely he is selling because he is losing money in which case he is probably desperate to sell and will take less.
When you ask the bar owners how business is going they all claim to be doing okay. This is because most of them are on the lookout for potential buyers to get themselves out of their current predicament.
The best chance of getting a good deal on a bar is from an existing leaseholder who is desperate to sell because he is losing money day-by-day. They won't openly admit it but many of them would accept a fraction of their initial investment because otherwise they are going to lose everything they put in plus they have to cover their losses every day.
Of course, this means you are buying a losing bar. The question is do you think you can bring something to the business to turn it around.
Ready to Go
The next easiest option is to lease a bar from a landlord that is ready to go. A typical example would be a beer bar in one of the sois off Soi Bangla. These come with everything you need to start business. All you need to do is buy your stock and find staff.
The problem is most of these landlords drive a hard bargain on the lease. They really are not all that interested in whether your bar succeeds as long as they get their key money and monthly rent. If you closedown after a year it is just an opportunity for them to lease the bar to a new sucker and get another big key money payment. There is always a steady supply of suckers looking for a bar in Phuket.
Start From Scratch
The other option is to build your business from scratch. Get a lease on an empty shop unit or building and create the bar of your dreams.
The advantages of this approach are you can design and build your bar exactly how you want it. Usually you can get better terms on the lease. There shouldn't be any key money as all the landlord is providing is an empty shell so why should you pay anything other than rent.
The disadvantages are instead of paying key money you will have to pay builders to create your bar. It will likely be several months before you are up-and-running and your cash flow starts. Be careful with the lease - while all your equipment and stock will belong to you, the contract may state that you cannot remove the fixtures and fittings you put in.
What Type of Bar ?
So what type of bar do you want to run? It is an important question as it will define your lifestyle while you are here. If you want your bar to have any chance of success, it will be the focus point of your life.
These are probably the easiest to find. There are hundreds in the sois around Bangla. They are simple open-sided bars selling drinks and usually offering bar girls. They basically do their business at nighttime so you will need to be there from around 9pm until it closes (probably between 1am - 3am).
The most important factors in their success are their location, their owner and their bar girls. If you are going to be successful, you are going to need to deal with the machinations of bar girls. You will need the patience of a saint.
I haven't mentioned location up to now but the old saying 'location, location, location' holds a lot of merit. The beer bars that face directly onto Bangla Road have always done well. In the sois, the bars closest to the entrance do best.
You can get beer bars in Karon or Kata but you should know that the low season in these resorts is much quieter than in Patong where there is a steady flow of customers all year round regardless of the season. I have never heard of a beer bar doing well in Karon or Kata simply because the low season income can be virtually non-existent.
For the better locations, you will pay more for your lease. As is often the case, the more you can invest the more chance you have of making money.
Back Road Bars
There are lots of bars set back from the main nightlife areas. In Patong, there are many along Rat-U-Thit Road, Nanai Road, Sainamyen and the back road sois.
These bars are mostly serving residents and longer-term tourists who take advantage of the lower room rates further back from the beach. They often have pool tables and big screens for watching sports events.
They tend to do a steady daytime trade with maybe a little peak in the evening. Some of these bars open in the morning to serve breakfast. They mostly close by 1am. Some of these bars have bar girls working.
Advantages: You get a bit more space for your money. You are in control of your own environment, music, TV etc. You have more trading hours to make your money and you can probably set up a small kitchen to serve food. Some of these bars have rooms upstairs for accommodation.
Disadvantages: You have to work longer hours. There are lots of these bars so there is lots of competition. You have to charge lower prices than the full-on tourist bars
A beach bar would be many peoples dreamy-eyed ideal. A refreshing dip in the sea in the mornings, a day serving cocktails and evenings partying by the shore. Well unfortunately, for most people it will remain a dream.
To begin with, beaches are public property and it is illegal to build on them. You are therefore not talking about a bar on the beach but by the beach. There are a few bars built illegally on some of the quieter beaches but local Thais have done this and foreigners will not get away with it.
And of course, bars by the beach are prime locations demanding high rents. Also, most of these bars will only do a daytime trade and you should remember that most people who go to the beach are not planning on getting drunk. More likely a few soft drinks and a snack to eat.
Just the same, with enough searching you can find beach bars that will make you a living and give a decent lifestyle.
Pubs and Discos
These are for the high-end investor. The large-size operation pubs and discos change hands for large sums of money. They need professional management and plenty of well-trained staff.
If you have the money and the know-how then they can be very lucrative businesses.
Do Your Sums
The next thing I would say is before you buy, do your sums. How much beer do you need to sell to break even. Is it going to be a realistic target.
So for example a beer bar in Bangla. If the rent is 30,000 baht a month and the key money is 1 million baht for three years. Divide 1 million by 36 months and this comes to 27,777 a month. Add this to your monthly rent and you have 57,777 a month. Consider other costs such as staff, a room for your bar girls, etc. Let's say you come to a figure of 70,000 baht A month for your fixed costs.
Let's say your drinks mark up is 100%. Actually most bars in Bangla mark up more than that but let's keep it simple. This means you have to sell 140,000 baht of drinks just to break even. That comes to an average of 4,666 baht of drink sales a day just to break even. And that is every day of the year including the low season. Over Christmas and New Year, many beer bars will do in excess of 20,000 baht a night. But spread that income out over a year to cover all those quiet low season nights and you can see it will be tough - and this is just to break even.
Of course, these are simple sums and you may have other factors to include. You may have extra sources of income such as bar fines or food sales.
You may have extra expenses. Some bars pay their bar girls a salary to make sure they stay and work well while others just provide a room and let the girls rely on what they can make from the customers.
Will You Be Legal ?
To work legally in Thailand you need a non-immigrant visa and a work permit. The only way you will get this from running a bar is if you set up a Thai company that meets the requirements for a foreigner work permit and then employ yourself and apply for the work permit. The requirements for a foreigner work permit vary depending on your situation but the most common is paid-up capital of 2 million baht and four Thai employees.
Even if you get a work permit, it does not allow you to serve behind the bar or do manual work around the bar. These are occupations reserved for Thais. If you have a work permit, you must pay income tax on a minimum salary regardless of whether you actually make any money. The minimum salary varies depending on your nationality but you would pay around 2000 - 2,500 baht a month
Basically, if you are running a small operation like a beer bar then you will not set up a company or get a work permit. The overheads of running a company are prohibitive.
If you ask any beer bar owner if they have a work permit they will all confidently explain that they don't need a work permit because they are not working. They just sit in their bars and talk to customers while the staff does all the serving. The strange thing is they are all totally convinced this is true.
Of course, it is not true. If you own a business in Thailand and receive money from it then you are working and should have a work permit. However the local authorities are perfectly willing to turn a blind eye on this issue because the bar owners are paying large rents to Thai landlords who are usually influential in local politics. Just don't get behind the bar or do other things that make it obvious you are working.
You can have the bar lease in your own name. Other documents such as your alcohol license normally need to be under a Thai name. Bar owners often get their partner or a trusted member of staff to put their name on these documents.
So what I am saying is that there is a difference between being totally legal and what is actually applied to small bars. If you keep all your serving permits up to date, employ Thai staff to do the serving work and keep yourself low profile then you should have no problems with the local authorities.
Protection Money ?
It is a strangely common question from those new to business in Phuket. Is there some kind of local mafia that will demand protection money? Well I have never heard of a bar owner being forced to pay protection money.
Although people talk about 'mafia' in Thailand the term is being used loosely and does not really represent the kind of organised crime syndicates that we associate with the term. There is no gang that will go around local businesses demanding money with threats.
It would be more accurate to talk about backhanders to buy a business advantage. I know of a few bars, both foreign owned and Thai owned, that make monthly payments to local 'influential people'. They are not forced to pay. They pay by choice to receive a few extra benefits. By making these contributions they can usually stay open late, not have problems with the police and have a phone number to call should they have any problems.
These 'influential people' have contacts in the police. In fact, many of them are police. It is common business practice in Asia. Nobody is forced to pay but if you want to oil the wheels a little you can buy a few advantages.
So there you are. If you really want to buy a bar in Phuket, you now have an introduction to what the business is like. It is by no means a complete introduction.
My best advice would be to take your time. Ask around, talk to the bar owners and get a real feel for what you will be dealing with. Don't believe everything you are told as many of the people you talk to will have their own interests. Don't rush in. Take your time and get the best deal you can possibly find because you will need every advantage you can get.
Since these articles about the bar business are turning into a series I think I will complete the series with my next article by looking at what actually makes for a successful bar in Phuket.
Owning a Bar Part 1- Is it Worth It - This article looks at the lifestyle of a Patong bar owner. Not at the problems of actually making money from one of these bars but simply at the quality of life the bar owners enjoy (suffer).
Owning a Bar Part 3- How to Run a Bar - The final article in our series about owning a bar in Phuket looks at what it takes to make a success of a bar.